In a recent article I asked myself why the Solactive Global Lithium Index didn´t consider substituting some of the battery companies currently in the Global X Lithium ETF by other more relevant Li-ion battery makers such as LG Chemical (OTC:LGCLF) and Samsung (OTC:SSNLF) from South Korea, which have shown a consistent growth in their market prices over the last five years. This may have sounded as a confirmation that South Korea is winning the Li-ion battery war. Nevertheless, a more careful examination of my contribution can give us a somewhat different reasoning.

The current picture of the situation may not be a good indication of what could happen in the next five years or so. In fact, as I indicated in my previous piece, Nissan together with Renault have recently announced that within that time frame they will commercialize 1.5 million zero-emission cars powered by Li-ion batteries which are likely to be produced by NEC Corporation from Japan. In addition, despite many ambiguous communications from Toyota (NYSE:TM) in this regard, I am now more inclined to believe that by 2016 or so Toyota will be forced to make a final transition to electric propulsion in general and to Li-ion batteries in particular.

Under those circumstances, one may envisage a revival and considerable increase in production of such advanced energy storage systems by Sanyo/Panasonic, Toyota´s official supplier of Li-ion batteries. This of course would imply that Toyota has ended its resistance to change I have insistently mentioned in a number of previous articles published here and elsewhere as an important obstacle to adoption of lithium-ion batteries for electric cars in the world.

Is this consistent with the facts? Well, following a recent analysis by Roland Berger – Strategy Consultants, in their presentation at the National Alliance for Advanced Technology Batteries (NAATBatt) annual meeting and conference, held in Louisville, Ky., on September 8, 2011, the size of the global lithium-ion battery market is expected to jump from USD 1.5 billion in 2011 to USD 8.9 billion in 2015.

In Figure 1 I show Roland Berger´s forecast of global shares in the Li-ion battery market for 2015 where four Japanese battery producers (AESC-NEC, Panasonic/Sanyo (PC) (OTC:SANYF), GS Yuasa (OTC:GYUAF) and Hitachi (HIT)) appear to account for 42% of the market, while two South Korean companies (LG Chemical and Samsung) would represent only about 21% of the cake, the latter percentage resulting from adding up LG´s share and half the share of SB LiMotive 50-50 joint venture between Samsung and Bosch from Germany.

Click to enlarge

Source: Roland Berger – Strategic Consultants.

There is at least one reason to believe that Japan has much more potential than South Korea to dramatically increase production of Li-ion batteries in the world in the next five years or so. It has to do with the Li-ion battery value chain. Nowadays, most anodes, cathodes, separators, and electrolyte solutions -- the four main components of Li-ion batteries -- produced in the world are made by Japanese companies. So in a way South Korea´s current dominance of the market may not be sustainable unless it undertakes in the coming years a true revolution in its lithium-ion battery value chain. In addition, Hyundai´s decision not to pursue production of pure electric cars in the near future may also need to be revised.

Does this mean Japan will win the Li-ion battery war? It does have the potential to do so, except for one thing: lithium. It lacks the resource indispensable to win the most important economic war of the present century. Hence we shouldn´t be surprised if Japan becomes much more proactive in the lithium resource market a few years from now.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.